Facebook’s shuttering of the project, which would have created a way for users to pay for things and send each other money that wouldn’t need to go through the regular financial system, came in response to internal clashes over its direction and sustained opposition in Washington, according to four people familiar with the effort who spoke on the condition of anonymity to describe sensitive matters.
“All of this scrutiny has an effect,” said Luther Lowe, senior vice president of public policy at Yelp and a longtime proponent of tougher antitrust policing of the biggest tech companies. “That’s a really important thing to keep an eye on right now because we’re on the verge of a new paradigm.”
The failure comes as crypto becomes more mainstream, despite a recent drop in prices. According to Pew Research, 16 percent of Americans have invested in or traded cryptocurrencies, and apps like Coinbase and Robinhood see billions of dollars in cryptocurrencies transact on their platforms every month. Some of Facebook’s Big Tech competitors are dipping their toes in the space too, with Google hiring a team of engineers to work on blockchain technology, which underpins cryptocurrency.
Internal troubles also helped scuttle the project, including clashes of vision between its leader and chief backer, former Facebook vice president Marcus, and CEO Mark Zuckerberg, one of the people said. Marcus, a well-liked executive who was formerly president of PayPal, announced his resignation in November — just two months after he had traveled to Washington to pitch the recently rebranded project to journalists and regulators.
Since the 2016 American election, when Facebook’s platform was exploited by Russian operatives, and then in 2018, after the company enabled political consulting firm Cambridge Analytica to misuse millions of Facebook users’ personal data, the company has faced a barrage of scrutiny from regulators all over the world. Privacy advocates say the firm collects too much data, and antitrust experts are concerned it holds too much power. Facebook groups harbored anti-vaccine activists for years, and its algorithms enabled their ideas to spread in a way that has contributed to vaccine hesitancy during the global pandemic. And the company failed to broadly police election misinformation and violent comments ahead of the Jan. 6 Capitol attack.
Facebook has been trying to escape its baggage by pushing into emerging technologies, including virtual reality hardware, smart glasses and a smartwatch that could be used for health tracking. It changed its name to Meta last year — one week after a whistleblower had come forward with thousands of internal documents showing its role in promoting societal polarization and harming teens’ mental health.
When Facebook announced the project in 2019 with a consortium of 27 partners including PayPal and Visa, it was called the Libra Association. The goal of the association was to establish a global network of instantaneous payments enabled through smartphones and available to people without access to formal banks.
The association, though organized by Facebook, was technically independent from it, and Facebook served as a board member and investor. Facebook would separately build its own cryptocurrency, called Calibra, that could participate in the Libra network. Backers at the time, including the venture capital firm Union Square Ventures, said Facebook’s scale alone would help bring cryptocurrency into the mainstream “financial infrastructure.”
After Zuckerberg gave the green light, Marcus set up a stealthy division within Facebook and traveled to 20 countries to brief regulators about the idea. But on the first day Facebook announced its plans, the project was criticized by the French finance minister, Bruno Le Maire, who called on central bank governors around the world to scrutinize the project. Regulators came away from an initial meeting with Facebook stunned that the company wasn’t more prepared to address concerns about money laundering, consumer protection and other potential financial risks, The Post reported at the time. What followed was a cascade of criticism from lawmakers, followed by congressional hearings.
Marcus and his colleagues went back to the drawing board. Last year, the Libra Association rebranded itself Diem, using the Latin for “day” to signify a new day. Facebook rebranded its wallet Novi, Latin for “new.” Digital wallets are online programs that let users store electric forms of currency, be they a cryptocurrency or bank deposit. Diem also staffed up, hiring a director who was a former treasury undersecretary for terrorism and financial intelligence under Presidents George W. Bush and Barack Obama. It changed its headquarters from Switzerland to the United States. A spokesperson for the U.S. Treasury Department declined to comment.
Facebook also redesigned the effort around “stablecoins,” a suite of emerging products that use cryptocurrency’s underlying blockchain technology but are pegged to a major currency, such as the U.S. dollar. Diem and other stablecoins aim to establish a system for seamless financial transactions, by creating a token — or “coin” — that can be traded digitally anywhere in the world. Unlike cryptocurrencies such as bitcoin, the value of which is not tied to anything external, stablecoins are pegged to major currencies already in circulation, which is why proponents say they are more stable.
At the same time, Marcus and Zuckerberg continued to clash over a vision for the project. Zuckerberg hoped to fold the Novi wallet into the company’s existing payment products, known as Facebook Pay, which is likely to be rebranded to align with Meta, one of the people said. Facebook Pay, which does not run on a blockchain or use crypto, is available in much of the world and lets people send money and pay for goods and services on Facebook and its other apps. But Marcus wanted the project to stay more independent.
The determination to wind it down was made before Marcus’s departure, one of the people said. People who know Zuckerberg say that his interests lie in hardware, gaming and the metaverse rebranding — not in cryptocurrency. One person speculated that it could have been more of a headache to Zuckerberg than it was worth.
Even without all the scrutiny on Facebook itself, launching a bank-backed stablecoin in the current regulatory environment is a tall order, said Darrell Duffie, an economics professor at Stanford University who has researched stablecoins. Governments are highly skeptical of digital currencies, and the United States is still debating how to legislate them.
Either way, Diem’s retreat will have a broader impact on the conversation over stablecoins, said Nic Carter, founding partner of crypto-focused venture capital firm Castle Island Ventures. He said strong private-sector efforts like the one from Facebook are key to balancing the power of governments that are considering making their own state-backed stablecoins.
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